Question

According to a recent article from Forbes, retail operations in the United States are experiencing over $60 billion a year in losses primarily due to employee theft. Imagine you have been hired as a loss prevention specialist for a large retail chain and your first assignment is to identify and address the current problems with inventory shrinkage. Select and discuss one of the following internal controls below you would implement to help prevent future employee fraud/theft? Be sure to provide your rationale.
Option A: More stringent background screenings for new hires (i.e. reference checks, criminal record checks, credit record checks)
Option B: Tighter security controls (i.e. video surveillance, random inventory/cash audits, computer system audits, segregation of duties)

Answer 1

Answer:

Internal Control Measure to prevent future employee fraud/theft:

Option B: Tighter security controls (i.e. video surveillance, random inventory/cash audits, computer system audits, segregation of duties)

Option B is chosen because fraud and theft still happen after stringent background screenings for new hires had been completed.  Background screenings concentrate on past events.  It has been established that the past cannot be a good predictor of the future.  People change.  Situations and incentives also change.  Relying on the past can, therefore, be misleading.

This leaves the option of security measures, which act to control the prevailing situation.  Using the above security and internal controls can stop the habitual fraudster.

Explanation:

As note earlier, relying on the past performance of employees by engaging in background screenings of new hires does not yield much in the fight against employee frauds and thefts.  While background screenings can be conducted, it is essential to put into place internal security controls that will actually prevent fraud incidence and catch the culprit.